China's Statistical Setback

Nationalistic pride can be found in strange places when it comes to celebrating the 60th anniversary of the founding of the People’s Republic of China. Two months ago, the Chinese National Bureau of Statistics (NBS) launched “Statistical Feelings: We have walked together—Celebrating the 60th anniversary of the founding of New China,” campaign designed to enhance patriotic fervor among China’s government statisticians. Entrants were asked to offer statements describing their love of statistics, their country and nationally inspired masterpieces such as: “I’m just a brick in the statistics building of the People’s Republic” and “Love the motherland, love statistics.”

Hilarity aside, this campaign is not meant to denigrate the role of statisticians, which is crucial in any economy. But the NBS’s statistics are maligned and derided by China-watchers throughout the world and by many Chinese economists. For official numbers to be more widely accepted and believed, it is not more patriotism from Chinese officials, statisticians and the NBS that is needed but less.

One recent illustration: The ink is still wet on official Chinese gross domestic product figures up to August and will likely see growth touching 8%. Meanwhile, analysts are spending almost as much time second-guessing Beijing’s statistics as they are working out what the official figure means for China and the world.

Why is there so much skepticism? Every quarter, the NBS goes through the same ritual. Statistics come in from all over the country. The provinces take around two weeks to compile them, three times as fast as many developed economies with much more efficient processes of data collection.

The NBS sorts through them, “consults” with senior government officials, applies a mysterious methodology to trim them into shape and then spits out a figure that is then diplomatically endorsed by organizations such as the World Bank and the OECD.

The economic debate then begins. A few years later, provincial data is tediously gathered, meticulously studied and official figures are revised. Significant discrepancies are discovered and condemned. Then as if on cue, Beijing promises to severely punish local officials found guilty of falsifying data.

This quarterly ritual offers an insight into how China is actually run and into a fundamental weakness that plagues the country.

During the Tang Dynasty (618-907 A.D.), there was one official for every 2,927 people. During the more recent Qin Dynasty (1644-1911 A.D.), there was one official for every 299 people. But in modern China, there are up to 45 million officials, amounting to about one official for every 35 people. Its bureaucracy certainly cannot complain about being understaffed. Yet, while modern China is the most over-governed land in Asia, it is also one of the worst governed.

Beijing rules over 34 provinces and administrative regions, which in turn administer around 1,450 counties. These counties then oversee 770,000 villages and townships. China was decentralized following reforms because, in theory, local authorities (county level and below) should be better placed not only to efficiently allocate public money but also to provide better enforcement and implementation of rules and laws.

But while China has been decentralizing and officials have multiplied, it is not the building of institutions that encourages public accountability.

For example, it’s hard to build a “rule of law” when the party controls both the courts and tribunals. It’s hard to have transparency when the party controls the media. It’s hard to make local officials accountable when Beijing relies on them to maintain the party’s hold on power in far-flung places.

There is also another problem. The state remains a significant player in the Chinese economy. State businesses receive over three-quarters of the country’s capital. The state owns over 65% of the country’s fixed assets. And local officials have an overwhelming influence on running these state businesses.

Local officials have a unique advantage. They control the dispensation of capital, land and sometimes even labor. If they want to obstruct businesses with red tape, they can, with little recourse. The explosion of officials in China was a prelude to the explosion of unaccountable bureaucrats each getting a slice of power, money and influence.

The problem of corruption is much worse and harder to root out when you have tens of millions of unaccountable officials compared with just a few hundred or thousand unaccountable ones at the top. Climbing the greasy ladder of status and wealth within China’s vast political and bureaucratic network depends on results. And results are usually defined by the economic performance of one’s township, city or county.

Despite 30 years of development, the growth of robust bureaucratic institutions in China has been stunted. When it comes to statistics, local officials have massive incentives to exaggerate performance, as that is the basis for their promotion, and there is little chance they will be caught, let alone punished, for dishonesty.

It is no wonder that growth statistics handed over to the NBS by local authorities for the vast majority of counties are almost always above the official average of all the counties—a statistical impossibility. The ambiguity is then made worse when NBS officials duly meet with senior leaders to determine an official number that is politically acceptable.

Beijing will do its best to convince its people and the world that its figures are accurate. But authoritarian politics is one thing. Issuing official statistics based on dodgy raw data and determined by flat and political priorities is something different altogether. It might be a time for celebration throughout China. But greater patriotism, mixed with a strong dollop of official corruption from the ground up, doesn’t produce better numbers even if the official figures say they do.